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Caloi Acquisition Puts Pressure on Dorel’s Earnings

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MONTREAL, Canada – “The costs related to the Caloi acquisition in August 2013 have resulted in our earnings to be lower than we hoped to see,” said Dorel President and CEO, Martin Schwartz yesterday at the presentation of the 2014 first half year results.

Caloi Acquisition Puts Pressure on Dorel’s Earnings
Organic revenue increased by approximately 15% year-to-date from Cannondale, Schwinn, Mongoose, GT and Caloi. - Photo Bike Europe

“Caloi’s first half of the year performance was close to plan with a loss from operations at the segment level of US$ 0.8 million,” Schwartz explained. “Caloi was affected by the slowing economy in Brazil and consumers’ focus on the World Cup which shifted attention away from the bicycle business.”

Confident on Caloi

“We are confident as Caloi is executing well and is growing its market share. The bulk of the earnings are expected to come in the fourth quarter as it is both the start of summer and Christmas in Brazil. Despite the softening Brazilian economy, we assume Caloi to grow versus last year and we are confident regarding its future contributions to the segment as we firmly believe this transaction will be a good long-term investment in Dorel’s future.”

The impact of Caloi decreased Dorel’s earnings by US$ 10.3 million net of tax for the six months ended June 30, 2014 which is mainly comprised of the mentioned US$ 0.8 million loss, cash interest costs and US$ 6.0 million of non-cash charges including accretion interest and unrealized foreign exchange losses on put option liabilities.

Cannondale Sports Group

Still Dorel Industries reported upswing results for its Recreational/Leisure segment. Besides Caloi the company also owns brands like Cannondale, Schwinn, Mongoose and GT. Organic revenue increased by approximately 15% year-to-date as overseas markets in the independent bike dealers (IBD) channel as well as sales to the North American mass merchant distribution channel contributed to the growth.

Year-to-date total revenue increased by 19% from US$ 441 million to US$ 526 million. In the same period operating profit went up by 138% to US$ 31 million. According to Schwartz, both the Cannondale Sports Group (CSG) and Pacific Cycle made solid headway. “CSG benefitted from global sales growth in most IBD markets, particularly in Europe and Japan, while better weather drove the improvement at Pacific Cycle at mass merchants.”

Outlook for second half

“As expected, the momentum of the first quarter continued in the second quarter in the Recreational/Leisure segment as operating profit rose from prior year. As we look to the second half, excluding the restructuring costs, we are anticipating a slight growth in operating profit for the third quarter and a significant growth in the fourth quarter versus previous year,” said Schwartz.

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